## 30. Deposit Rates in Lebanon and the United States, 1995–2006

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---

### Introduction
- Lebanon has one of the highest government debt burdens in the world, built up since the end of the civil war in 1991.
- By 2001, government debt had risen to 164 percent of GDP, about one third of which was in foreign currency.
- A fiscal adjustment in late 2002 contained the primary deficit in 2003 and 2004 and stabilized debt at just below 170 percent of GDP at end-2004.
- Two major exogenous shocks:
  - 2005: Assassination of former Prime Minister Hariri (February 14, 2005) — Eurobond spreads increased by about 90 basis points to over 400 basis points; an estimated $2 billion in deposits left the country (3.5 percent of deposits); bank deposit dollarization increased from 69 percent to over 78 percent; central bank lost about $1½ billion in reserves defending the peg.
  - 2006: Conflict between Hezbollah and Israel (July–August 2006) — spreads jumped by close to 200 basis points to over 400 basis points; deposit outflows amounted to over $3 billion (5.4 percent of deposits); deposit dollarization jumped from 72 percent to 75 percent in August; central bank received deposits of $1 billion (Saudi Arabia) and $500 million (Kuwait) which limited gross reserve losses.
- Despite shocks, confidence returned and deposit outflows were recouped by year-end in both episodes.
- Paper based on interviews with six leading banks in Beirut and seven investment banks and hedge funds in London (July 2007).

### Lebanon’s Main Vulnerabilities
- Solvency and liquidity concerns:
  - Government debt among highest in world (e.g., gross debt reached near 170–179 percent of GDP during 2004–2006).
  - Debt service took up 52 percent of revenues in 2006 or 13 percent of GDP.
  - About half of government debt is denominated in foreign currency.
  - Only a quarter of government debt at end-2006 is estimated to be held by non-residents.
- Banking sector and deposits:
  - Domestic banks hold the majority of government paper; banks and central bank together hold around three quarters of government debt (domestic banks ~50 percent; Banque du Liban ~25 percent).
  - Deposits reached 267 percent of GDP in 2006.
  - Deposits are highly concentrated (size buckets in February 2007):
    - > $4000k: 14 percent
    - $1000–4000k: 11 percent
    - $500–1000k: 20 percent
    - $150–500k: 38 percent
    - < $150k: 17 percent
  - Deposit maturities (February 2007):
    - < 1 month: 74 percent
    - > 1 month < 3 months: 15 percent
    - > 3 months < 6 months: 6 percent
    - > 6 months < 12 months: 3 percent
    - > 1 year < 5 years: 2 percent
  - Average maturity of deposits is much shorter than government paper: t-bills just over one year; Eurobonds around six years (as of August 2007).
  - Deposit dollarization high and rising: 69 percent pre-2005 → over 78 percent post-2005 event; 72 percent pre-July 2006 → 75 percent in August 2006; March 2002–June 2007 series showing levels in the low-to-mid 70s.
- External position:
  - Country as a whole has a high external debt to GDP ratio.
  - Government external debt and gross external debt series shown through 1990–2006.

### Investors and Investment Strategies
- Domestic vs. foreign investor differences:
  - Domestic investors: captive demand for sovereign paper, limited alternatives in domestic currency, treat local-currency and foreign-currency portfolios largely separately due to net open position regulations; invest heavily in T-bills.
  - Foreign investors: three broad categories:
    - Benchmark-following investors (e.g., EMBI) include Lebanon automatically.
    - Absolute return investors (in-depth bottom-up research, long-term view, patient).
    - Traders/temporary investors (front running specific events).
- Market monitoring (average rank, 1 = most important, 5 = least important):
  - Gross international reserves: All 1.4; Lebanon 1.5; London 1.3.
  - Government debt, fiscal balance: All 1.8; Lebanon 1.5; London 2.0.
  - Political situation: All 1.3; Lebanon 1.2; London 1.3.
- Correlation and volatility:
  - Lebanon’s Eurobond returns relatively lowly correlated with other emerging markets; correlation matrix shows Lebanon correlations close to zero or small positive/negative values with many peers.
  - Standard deviation of Eurobond spreads (3-month moving average) shows Lebanon volatility close to EMBI+ over March 2000–August 2007.
- Yield perceptions:
  - Mixed views on attractiveness: some view yield in line with rating or somewhat higher; others see potential scarcity premium and limited secondary market activity.

### Self-Reinforcing Stability in the Market for Lebanese Debt
- Two main stabilizing factors:
  - Perceived implicit guarantee from donors/IFIs — market participants ranked this factor high in analyzing Lebanon.
    - 2006 example: Saudi and Kuwaiti deposits ($1 billion and $500 million) and donor pledges (Stockholm conference: around $900 million) narrowed CDS and Eurobond spreads quickly.
    - Donors’ pledges at Paris III (January 2007) reached some $7.6 billion, of which around $2 billion expected to go directly to the budget.
  - Large domestic holding of sovereign debt — default would be very costly domestically creating strong incentives for government and banks to avoid default.
- Market structure effects:
  - Domestic banks (“captive” investors) hold ~50 percent of government paper; Banque du Liban holds ~25 percent (80 percent of which in t-bills).
  - Local banks’ government exposure exceeds 50 percent of their assets (government + central bank paper).
  - Thin trading and limited number of international holders reduce price swings; market makers may design domino trades when direct buyers scarce.
  - Limited external holdings (26 percent of total government debt estimated external at end-2006) keeps international investor influence smaller.
- Virtuous circle described:
  - Domestic banks constrained/willing to stay invested.
  - Relative return investors held by benchmarks providing technical demand.
  - Dedicated absolute return investors patient during stress.
  - Combined perception of low default probability and attractive yields sustaining the equilibrium.

### The Role of Deposits
- Main depositor groups:
  - Large and wealthy Lebanese Diaspora (size of Diaspora estimated at least 5 million and could be as large as 16 million; Lebanon’s population 4 million).
  - Arab investors in the region (Syria, West Bank and Gaza, Iraq, Jordan, Saudi Arabia, Kuwait, UAE).
  - Lebanese residents (classification by Lebanese address leads residents to account for the lion’s share of deposits).
- Deposit behavior and confidence drivers:
  - Depositors focus on stability of the exchange rate peg, absence of exchange controls, level of gross international reserves, implicit donor guarantee, and the banking system’s high dollar liquidity.
  - Depositors often react to one-off events rather than to steady changes in fundamentals.
  - In 2005 and 2006 deposit outflows amounted to around 3–5 percent of total deposits; banks met outflows from large liquid foreign asset holdings and outflows were recouped within half a year.
- Banking sector attributes attracting deposits:
  - Well-regulated banking system with good financial soundness indicators and relatively high bank ratings.
  - High core liquidity levels: core liquidity 22 percent of total assets and 36 percent of foreign currency deposits at end-2006 (excluding Eurobonds and placements with central bank).
  - Deposit rates: U.S. short-term deposit rate (5-year and 2-year comparisons), U.S. dollar deposits in Lebanon, and Lebanese pound deposits in Lebanon — depositors obtain attractive short-maturity yields though margin over international rates narrowed in recent years.
  - Foreign assets relative to deposits: foreign assets as percent of total deposits for Lebanon around 2006 levels relative to peers.

### Summary and Conclusions
- Key reasons for Lebanon’s resilience to 2005 and 2006 shocks:
  - Perception of an implicit guarantee from donors/IFIs.
  - Lebanon’s track record of zero default.
  - Large liquidity cushions in banks and central bank support actions.
  - A dedicated investor base including domestic banks, Diaspora-linked depositors, and patient international investors.
  - Favorable global environment and “search for yield” also likely contributed.
- Risks and tensions:
  - Growing tension between worsening solvency indicators (very high debt-to-GDP and debt-to-revenue ratios; debt service 52 percent of revenues in 2006) and ample short-term liquidity.
  - The “good equilibrium” is fragile and depends on continued belief among investors and depositors in key pillars (donor support, peg stability, no-default record).
  - Failure of one or more pillars could precipitate a crisis.
- Lessons and implications:
  - Markets may reward countries with a history of no defaults with greater leeway.
  - A strong local banking system that intermediates inflows can contribute to market stability by creating a stable investor base, but stability depends on deposit stability.
  - Country-specific financial and institutional factors can significantly affect resilience to shocks and should complement standard debt sustainability and crisis models.

### Appendix I. Design of Survey
- Scope and timing:
  - Interviewed representatives of six financial institutions in Lebanon and seven financial institutions in London who trade in Lebanese paper and/or research Lebanon currently or have done so in the past.
  - Interviews in Lebanon took place July 19–24, 2007.
  - Interviews in London took place July 26–27, 2007, at the time when the global re-assessment of risk that took place during the summer of 2007 began.
- Interview process:
  - Participants received the questionnaire a few weeks in advance of the actual interview.
  - Many participants provided written responses either prior to or during the interview.
  - Questionnaire served as a broad outline for individual interviews.
  - In Lebanon, authors sought a mix of large banks, smaller banks, and one foreign bank.
- Questionnaire structure (major themes):
  - Background (investment motives, market participants, strategy, horizons, currency choices, liquidity, alternative opportunities).
  - Assessment of Lebanese risk (data sources, ranking of risk factors, key monitoring variables, comparisons with similarly rated countries).
  - Behavior during the 2005 and 2006 crises (market characterization, authorities’ response, investor reactions, hedging, monitoring).
  - Behavior of depositors during the 2005 and 2006 crises (motivations to deposit, share of wealth invested, depositor composition, reaction to events).
- Selected questionnaire items and response options (verbatim), including:
  - Investment horizon options: Short term (up to 1 month); Medium term (up to 6 month); Long term (more than 6 month).
  - Currency choice influences: Higher yield; Expectation that exchange rate would remain stable.
  - Impression of market liquidity options: very liquid; somewhat liquid (about a week to find a buyer); very illiquid (more than a week); liquidity drying up at times of mounting political or security tensions.
  - Data sources to rely upon: Official publications; Market research from domestic banks; Market research from international banks and analysts; Rating agencies; Own research; IMF, IIF, World Bank.
  - Ranking factors and key variables monitored: Fundamentals; Rating; Market depth; Liquidity; Macroeconomic management; Data quality and availability; Implicit guarantees from donors/IFIs; Gross international reserves; Government debt, fiscal balance; Banking sector indicators; Political situation.
  - Country-attractiveness comparison list used S&P and Moody's sovereign long-term foreign currency ratings as of June 8, 2007.
  - Questions posed only to Lebanese banks included: For depositors of more then $5 million, what share of the depositors’ overall wealth is invested in Lebanon? What share of depositors are residents, Lebanese expatriates, and non-Lebanese non-residents? How did depositors respond to the 2005 and 2006 events?

*Source: _wp0817 - References.*

### References..............................................................................................................

### _wp0817 - References..............................................................................................................

### Tables
- 1.     Lebanon’s     Attractiveness Relative to Peers.......................................................................8
- 2.     Background     Information ..................................................................................................12
- 3.     Monitoring of Lebanese Risk ..........................................................................................12
- 4.     Correlation of Eurobond Yields Among Selected 
 Emerging Markets, January 2000–August 2007..............................................................14
- 5.     Sovereign Defaults in Comparison ..................................................................................18
- 6.     Factors in Analyzing Lebanon as an Investment Opportunity ........................................19
- 7.     Financial Soundness Indicators, 2006 .............................................................................26
- 8.     Depositors ........................................................................................................................28

### Figures
- 1.     Build-Up of Government Debt, 1990–2006 ......................................................................4
- 2.     Real Implicit Interest Rate and Real Growth, 1993–2006.................................................4
- 3.     Government Debt, 1990–2006...........................................................................................8
- 4.     Gross Government Debt, 2006 ..........................................................................................8
- 5.     Government Debt Service, 1990–2006..............................................................................9
- 6.     Debt Service, 2006.............................................................................................................9
- 7.     Government Debt by Currency and Residency, 1990–2006 .............................................9
- 8.     Externally-Held Government Debt, 2006 ..........................................................................9
- 9.     External Debt, 2006 .........................................................................................................10
- 10.   Decomposition of Government Debt by Holders, December 2006 .................................10
- 11.   Government Debt, 1990–2006.........................................................................................10
- 12.   Government Debt, 2006...................................................................................................10
- 13.   Size of Deposits, February 2007 ......................................................................................10
- 14.   Distribution of Deposits by Maturity, February 2007 .....................................................10
- 15.   Deposit Dollarization, March 2002–January 2007 ..........................................................11
- 16.   Eurobond and Credit Default Swaps (CDS) Spreads ......................................................11
- 17.   Dollarization of Credit to the Private Sector, December 2003–June 2007......................13
- 18.   Standard Deviation of Eurobond Spread, March 2000–August 2007 .............................14
- 19.   Sovereign Rating and Eurobond Spreads ........................................................................15
- 20.   Yield on Government Securities, 1995–2006 ..................................................................15
- 21.   Frequency of Sovereign Default, 1975–2006 ..................................................................17
- 22.   Eurobond and Credit Default Swaps (CDS) Spreads ......................................................19
- 23.   Trading Activity in Sovereign Paper ...............................................................................21
- 24.   Commercial Bank Claims on the Government, 2006 ......................................................22
- 25.   Private Sector Deposits, 2002–06 ....................................................................................23
- 26.   Hariri Assassination: Deposits, February–July 2005.......................................................24
- 27.   2006 Conflict: Deposits, July–December 2006 ...............................................................24
- 28.   Bank Ratings in Comparison, June 2007 .........................................................................25
- 29.   Foreign   Assets..................................................................................................................26

*Source: _wp0817 - References.*

### 30.   Deposit Rates in Lebanon and the United States, 1995–2006 .........................................27

### 30. Deposit Rates in Lebanon and the United States, 1995–2006

### Introduction
- Lebanon has one of the highest government debt burdens in the world, built up since the end of the civil war in 1991.
- By 2001, government debt had risen to 164 percent of GDP, about one third of which was in foreign currency.
- A fiscal adjustment in late 2002 contained the primary deficit in 2003 and 2004 and stabilized debt at just below 170 percent of GDP at end-2004.
- Two major exogenous shocks:
  - 2005: Assassination of former Prime Minister Hariri (February 14, 2005) — Eurobond spreads increased by about 90 basis points to over 400 basis points; an estimated $2 billion in deposits left the country (3.5 percent of deposits); bank deposit dollarization increased from 69 percent to over 78 percent; central bank lost about $1½ billion in reserves defending the peg.
  - 2006: Conflict between Hezbollah and Israel (July–August 2006) — spreads jumped by close to 200 basis points to over 400 basis points; deposit outflows amounted to over $3 billion (5.4 percent of deposits); deposit dollarization jumped from 72 percent to 75 percent in August; central bank received deposits of $1 billion (Saudi Arabia) and $500 million (Kuwait) which limited gross reserve losses.
- Despite shocks, confidence returned and deposit outflows were recouped by year-end in both episodes.
- Paper based on interviews with six leading banks in Beirut and seven investment banks and hedge funds in London (July 2007).

### Lebanon’s Main Vulnerabilities
- Solvency and liquidity concerns:
  - Government debt among highest in world (e.g., gross debt reached near 170–179 percent of GDP during 2004–2006).
  - Debt service took up 52 percent of revenues in 2006 or 13 percent of GDP.
  - About half of government debt is denominated in foreign currency.
  - Only a quarter of government debt at end-2006 is estimated to be held by non-residents.
- Banking sector and deposits:
  - Domestic banks hold the majority of government paper; banks and central bank together hold around three quarters of government debt (domestic banks ~50 percent; Banque du Liban ~25 percent).
  - Deposits reached 267 percent of GDP in 2006.
  - Deposits are highly concentrated (size buckets in February 2007: > $4000k: 14 percent; $1000–4000k: 11 percent; $500–1000k: 20 percent; $150–500k: 38 percent; < $150k: 17 percent).
  - Deposit maturities (February 2007): < 1 month: 74 percent; > 1 month < 3 months: 15 percent; > 3 months < 6 months: 6 percent; > 6 months < 12 months: 3 percent; > 1 year < 5 years: 2 percent.
  - Average maturity of deposits is much shorter than government paper: t-bills just over one year; Eurobonds around six years (as of August 2007).
  - Deposit dollarization high and rising: 69 percent pre-2005 → over 78 percent post-2005 event; 72 percent pre-July 2006 → 75 percent in August 2006; March 2002–June 2007 series showing levels in the low-to-mid 70s.
- External position:
  - Country as a whole has a high external debt to GDP ratio (Figure 9).
  - Government external debt 1/ and gross external debt series shown through 1990–2006.

### Investors and Investment Strategies
- Domestic vs. foreign investor differences:
  - Domestic investors: captive demand for sovereign paper, limited alternatives in domestic currency, treat local-currency and foreign-currency portfolios largely separately due to net open position regulations; invest heavily in T-bills.
  - Foreign investors: three broad categories:
    - Benchmark-following investors (e.g., EMBI) include Lebanon automatically.
    - Absolute return investors (in-depth bottom-up research, long-term view, patient).
    - Traders/temporary investors (front running specific events).
- Market monitoring (average rank, 1 = most important, 5 = least important):
  - Gross international reserves: All 1.4; Lebanon 1.5; London 1.3.
  - Government debt, fiscal balance: All 1.8; Lebanon 1.5; London 2.0.
  - Political situation: All 1.3; Lebanon 1.2; London 1.3.
- Correlation and volatility:
  - Lebanon’s Eurobond returns relatively lowly correlated with other emerging markets; correlation matrix shows Lebanon correlations close to zero or small positive/negative values with many peers.
  - Standard deviation of Eurobond spreads (3-month moving average) shows Lebanon volatility close to EMBI+ over March 2000–August 2007.
- Yield perceptions:
  - Mixed views on attractiveness: some view yield in line with rating or somewhat higher; others see potential scarcity premium and limited secondary market activity.

### Self-Reinforcing Stability in the Market for Lebanese Debt
- Two main stabilizing factors:
  - Perceived implicit guarantee from donors/IFIs — market participants ranked this factor high in analyzing Lebanon.
    - 2006 example: Saudi and Kuwaiti deposits ($1 billion and $500 million) and donor pledges (Stockholm conference: around $900 million) narrowed CDS and Eurobond spreads quickly.
    - Donors’ pledges at Paris III (January 2007) reached some $7.6 billion, of which around $2 billion expected to go directly to the budget.
  - Large domestic holding of sovereign debt — default would be very costly domestically creating strong incentives for government and banks to avoid default.
- Market structure effects:
  - Domestic banks (“captive” investors) hold ~50 percent of government paper; Banque du Liban holds ~25 percent (80 percent of which in t-bills).
  - Local banks’ government exposure exceeds 50 percent of their assets (government + central bank paper).
  - Thin trading and limited number of international holders reduce price swings; market makers may design domino trades when direct buyers scarce.
  - Limited external holdings (26 percent of total government debt estimated external at end-2006) keeps international investor influence smaller.
- Virtuous circle characterized by:
  - Domestic banks constrained/willing to stay invested.
  - Relative return investors held by benchmarks providing technical demand.
  - Dedicated absolute return investors patient during stress.
  - Combined perception of low default probability and attractive yields sustaining the equilibrium.

### The Role of Deposits
- Main depositor groups:
  - Large and wealthy Lebanese Diaspora (size of Diaspora estimated at least 5 million and could be as large as 16 million; Lebanon’s population 4 million).
  - Arab investors in the region (Syria, West Bank and Gaza, Iraq, Jordan, Saudi Arabia, Kuwait, UAE).
  - Lebanese residents (classification by Lebanese address leads residents to account for the lion’s share of deposits).
- Deposit behavior and confidence drivers:
  - Depositors focus on stability of the exchange rate peg, absence of exchange controls, level of gross international reserves, implicit donor guarantee, and the banking system’s high dollar liquidity.
  - Depositors often react to one-off events rather than to steady changes in fundamentals.
  - In 2005 and 2006 deposit outflows amounted to around 3–5 percent of total deposits; banks met outflows from large liquid foreign asset holdings and outflows were recouped within half a year.
- Banking sector attributes attracting deposits:
  - Well-regulated banking system with good financial soundness indicators and relatively high bank ratings (Moody’s, Fitch assessments cited).
  - High core liquidity levels: core liquidity 22 percent of total assets and 36 percent of foreign currency deposits at end-2006 (excluding Eurobonds and placements with central bank).
  - Foreign assets relative to deposits: Figure 29 shows foreign assets as percent of total deposits for Lebanon around 2006 levels (Lebanon’s bar relative to peers).
  - Deposit rates: Figure 30 series for 1995–2006 shows U.S. short-term deposit rate (5-year and 2-year comparisons), U.S. dollar deposits in Lebanon, and Lebanese pound deposits in Lebanon — depositors obtain attractive short-maturity yields though margin over international rates narrowed in recent years.
- Specific depositor motivations (survey ranks, 1–5):
  - Diaspora: home-bias/patriotic ties, family, real estate and investment links, prospects of eventual return.
  - Non-Lebanese: complement or precede investments in Lebanon (real estate, productive capacity); diversification for high net-worth individuals.
  - For very large depositors (> $5 million), banks estimate share of depositor's wealth invested in Lebanon at 20 percent.

### Summary and Conclusions
- Key reasons for Lebanon’s resilience to 2005 and 2006 shocks:
  - Perception of an implicit guarantee from donors/IFIs.
  - Lebanon’s track record of zero default.
  - Large liquidity cushions in banks and central bank support actions.
  - A dedicated investor base including domestic banks, Diaspora-linked depositors, and patient international investors.
  - Favorable global environment and “search for yield” also likely contributed.
- Risks and tensions:
  - Growing tension between worsening solvency indicators (very high debt-to-GDP and debt-to-revenue ratios; debt service 52 percent of revenues in 2006) and ample short-term liquidity.
  - The “good equilibrium” is fragile and depends on continued belief among investors and depositors in key pillars (donor support, peg stability, no-default record).
  - Failure of one or more pillars could precipitate a crisis.
- Lessons and implications:
  - Markets may reward countries with a history of no defaults with greater leeway.
  - A strong local banking system that intermediates inflows can contribute to market stability by creating a stable investor base, but stability depends on deposit stability.
  - Country-specific financial and institutional factors can significantly affect resilience to shocks and should complement standard debt sustainability and crisis models.

*Source: IMF working paper content provided in the supplied PDF excerpt.*

### Appendix I. Design of Survey

### Appendix I. Design of Survey

### Scope and timing
- Interviewed representatives of six financial institutions in Lebanon and seven financial institutions in London who trade in Lebanese paper and/or research Lebanon currently or have done so in the past.
- Interviews in Lebanon took place July 19–24, 2007.
- Interviews in London took place July 26–27, 2007, at the time when the global re-assessment of risk that took place during the summer of 2007 began.

### Interview process
- Participants received the questionnaire a few weeks in advance of the actual interview.
- Many participants provided written responses either prior to or during the interview.
- The questionnaire served as a broad outline for individual interviews.
- With respect to institutions in Lebanon, the authors tried to achieve a mix of large banks, smaller banks, and one foreign bank.

### Questionnaire structure (major themes)
- Background (investment motives, market participants, strategy, horizons, currency choices, liquidity, alternative opportunities).
- Assessment of Lebanese risk (data sources, ranking of risk factors, key monitoring variables, comparisons with similarly rated countries).
- Behavior during the 2005 and 2006 crises (market characterization, authorities’ response, investor reactions, hedging, monitoring).
- Behavior of depositors during the 2005 and 2006 crises (motivations to deposit, share of wealth invested, depositor composition, reaction to events).

### Selected questionnaire items and response options (verbatim)
- Investment horizon for holding Lebanese paper:
  - Short term (up to 1 month)
  - Medium term (up to 6 month)
  - Long term (more than 6 month)

- How often do you re-assess your position relative to other investments?
  - More often
  - About the same
  - Less often

- Have you bought paper denominated in LL or USD or both?
  - Share of paper denominated in LL
  - Share of paper denominated in USD

- What influenced your currency choice?
  - Higher yield
  - Expectation that exchange rate would remain stable

- Impression of market liquidity:
  - The market is very liquid, we can sell our holdings at any time.
  - The market is somewhat liquid, it takes about a week to find a buyer.
  - The market is very illiquid, it takes more than a week to find a buyer.
  - Liquidity is drying up at times of mounting political or security tensions.

- Do you have sufficient alternative investment opportunities?
  - Yes.
  - No, not in LL.
  - No, not in USD.
  - No, not in LL or USD.

- Data sources to rely upon when analyzing Lebanon (asked to rank in order of importance):
  - Official publications.
  - Market research from domestic banks.
  - Market research from international banks and analysts.
  - Rating agencies.
  - Own research.
  - IMF, IIF, World Bank.

- Ranking factors (High, Medium, Low) for Lebanon and for All Countries:
  - Fundamentals (growth, inflation, current account, exchange rate, ...)
  - Rating
  - Market depth
  - Liquidity
  - Macroeconomic management
  - Data quality and availability
  - Implicit guarantees from donors/IFIs

- Key variables monitored to assess risk:
  - Gross international reserves as reported by the central bank?
  - Government debt, fiscal balance?
  - Banking sector indicators?
  - Political situation?
  - Other, please list.

- Country-attractiveness comparison: respondents asked to rank attractiveness relative to Lebanon for a list of countries with S&P and Moody's sovereign long-term foreign currency ratings as of June 8, 2007 (table includes Argentina, Bolivia, Bosnia and Herzegovina, Dominican Republic, Ecuador, Georgia, Grenada, Honduras, Indonesia, Jamaica, Jordan, Lebanon B- / B3, Nicaragua, Nigeria, Pakistan, Paraguay, Philippines, Serbia, Seychelles, Sri Lanka, Turkey, Ukraine, Uruguay, Venezuela). 1/ Sovereign long-term foreign currency rating as of June 8, 2007.

- Behavior during crises (2005 Hariri assassination and 2006 conflict with Israel) — characterization options:
  - Near-crisis?
  - Correction of positions?
  - Opportunities to buy?

- Assessment of authorities’ response to financial pressures as they emerged:
  - Central Bank
  - Ministry of Finance

- Immediate and ½ year reaction after events:
  - Sell/hold/buy?
  - Hedging, e.g., through CDS?
  - Increased monitoring?

- Factors motivating reactions (asked to rank in order of importance):
  - Liquidity of the central bank (level of gross international reserves).
  - Liquidity of commercial banks.
  - Trust in the authorities’ ability to manage markets and expectations.
  - Implicit blanket guarantee from friendly countries.
  - Other

- Reasons for depositors to come to Lebanon:
  - Home-bias.
  - Yield.
  - Diversification.
  - Range of products available. Financial services.
  - Banking secrecy.

- Questions posed only to Lebanese banks (noted in questionnaire):
  - Question 25: For depositors of more then $5 million, what share of the depositors’ overall wealth is invested in Lebanon?
  - Question 26: What share of depositors are residents, Lebanese expatriates, and non-Lebanese non-residents?
  - Question 27: How did depositors respond to the 2005 and 2006 events?

*Appendix I. Design of Survey — source content (PDF chapter).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2008/_wp0817.pdf_